CapitaLand Investment (CLI) held above its net asset value (NAV) on its first day of trading. Investors were given one CLI valued at $2.823, and this value had risen to $2.93 by June 30. CLI ended at $2.95 on Sept 20. This is despite a one-day decline of 29 points in the Straits Times Index to end at 3,041, while the Hang Seng Index fell 821 points on Sept 20, to 24,099.
As a price check, ESR Cayman, a real estate invesment manager, has held up despite the sharp sell-off in Hong Kong. However, it has lost 13.4% this year, with most of the loss coming after the announcement that it plans to acquire ARA Asset Management for US$5.2 billion in a largely share deal, which minority investors were not happy with. In contrast to ESR Cayman’s steady performance, China Evergrande Group is down 83.9% this year.
Some US$300 billion of China Evergrande Group’s obligation to creditors, businesses and bonds mature on Sept 23, and creditors are bracing for a default. In Singapore, Jardine Matheson Holdings and DBS Group Holdings were the top losers, which was not surprising given their significant businesses in Hong Kong.
When asked how Evergrande could affect CLI, group CEO Lee Chee Koon said “The situation in China is evolving. We expect to see more measures till the end of next year. From CLI’s point of view, we think concept of common prosperity is something we subscribe to. We want to make sure we do good, and right by stakeholders.”
Chinese developers have been impacted by the guidance of three red lines - which are simply financial ratios that most companies in Singapore adhere to. They include a net gearing ratio below 1 time, liabilities to assets of less than 0.7 times, and cash to short term debt of more than 1 time.
“The three red lines provide a more even playing field for foreign competition and over last couple of months we will see a lot more interesting properties. We hope to have interesting deals to share,” Lee says.
During the media and analysts meet and greet with the new management of CLI on Sept 20, chairman Miguel Ko said CLI will deliberate on building a company that is sustainable, and one that can survive Covid and a trade war. “Ultimately, success is measured by the share price because all the work should be crystallised in the share price. We have high hopes we will do well but how well will need to be further determined,” Ko indicates.
Unlike CapitaLand, CLI’s developments are unlikely to be iconic developments such as Raffles City Chongqing, but mundane buildings like warehouses. “There are opportunities in new economy assets and we are seeing interesting news on data centres, logistics development and business parks. There are a lot more legs to grow. On lodging side, CLI will be doing a lot more in rental apartments and purpose built student accomodation (PBSA). In debt and credit space, we did a small debt deal in Hong Kong, and securitised it and there are a lot more interesting opportunities. As a company, you will see us moving on all fronts, looking for opportunities,” Lee says.
The privatised CapitaLand Development (CLD) will focus on development in Singapore, China, Vietnam and India, and looking at new markets. “At the same time to CLD will provide a pipeline to CLI, its funds and REITs,” Lee adds.
CLI is likely to expand into private equity real estate (PERE) and alternative assets. It has recruited Simon Treacy, Managing Director, Global Chief Investment Officer and Head of U.S. Equity for BlackRock Real Estate, who will be joining CLI as CEO of Private Equity Real Estate, responsible for driving the growth of CLI’s private equity real estate business. Prior to BlackRock, Treacy was co-founder, director and global CEO of MGPA, hence he is no stranger to Singapore.
Patrick Boocock, Managing Partner and Head of Asia at Brookfield Asset Management, will be joining CLI as CEO of Private Equity Alternative Assets, in charge of building and growing CLI’s private fund business in alternative assets to expand the Group’s unlisted fund portfolios.
“We want to strengthen pipeline and continue to grow. We hope to continue to inspire anew with newer achievements and we want to make sure whatever we do is sustainable, we want to do well, do good and do right,” Lee concludes.